Q2 2020 Staffing 360 Solutions Inc Earnings Call

Greetings, ladies and gentlemen, and welcome to the staffing 360 solutions fiscal Q2 2020 results conference call. At this time all participants are in listen only mode. A brief question answer session will follow the formal presentation if anyone should read.

Choir, operator assistance during the conference. Please press Star Zero on your telephone keypad as a reminder, this conference is being recorded.

This conference will contain.

Forward looking statements within the meaning of the U.S. Federal Securities laws concerning SAPIEN 360 solutions, Inc. Forward looking statements are subject to a number of significant risks and uncertainties and our actual results may differ materially. Please refer to the company's filings with the FCC, which contain and identify important risks and other.

Factors that may cause staffing 350 solutions actual results to differ from those contained in our forward looking statements.

All forward looking statements are made as of today August 12, 2020, and staffing Threesixty solutions expressly disclaims any obligation to revise or more to update any forward looking statement. After the date of this conference call. During these prepared comments, we may make reference to certain non-GAAP measurements such as adjusted EBITDA.

Where applicable we have provided reconciliations of these non-GAAP measures to the most directly comparable GAAP measure. It is now my pleasure to introduce Brendan flood Chairman and Chief Executive Officer of SAPIEN 360 solutions. Mr. Flood you may begin.

Thank you Orlando.

And thank you everyone, who has joined US for staffing 300, Sixtys fiscal second quarter.

Twentytwenty financial results conference call.

I'm joined today by at least Barker, our Chief operating officer.

I'm not sure like a visit cooler, our corporate controller and principal accounting officer.

[noise] I'll start my remarks like continuing in my hope.

That everyone is staying healthy unsafe.

During this increase adapted covert 19 pandemic.

Well being about stuff contractors inclined.

Has continued to be our main priority.

Since the virus was discovered and the outbreaks threat to our geographies.

I'll begin with an overview of our financial and operational performance covering the second quarter of Twentytwenty.

Then I will hand, the call over the short to go for further details.

I think which Felicia well update us on the operational impact.

The cobot 19, pandemic and they're continuing responds to it.

[laughter].

Okay, well I think what we're seeing performance wise in the third quarter.

What our near term plans are in relation to intended refinancing of our business.

And then the line will be open for questions.

[noise] as outlined in our press release yesterday.

Revenue for Q2, Twentytwenty was 43.3 million.

Gross profit up 7.6 million.

Both of these metrics are exactly in line with a number as previously guided to on the Q1 call.

The reductions year on year were principally driven by the lots of a pay rolling it out in the UK.

The introduction of the IR 35 legislation ultimately UK.

Along with a deep impact in April in early May have to go get 90 and pandemic.

On a sequential basis, our Q2 revenue was down 26% against Q1.

Gross profit down 28%.

Well they weekly billing perspective.

Well, we have seen across the first half was January at 4.4 million.

February up to 4.8 million.

March back to 4.4 million.

April decline of 17% to 3.2 million.

And then we start to see constant growth as you're up 4.4% in may to 3.3 million and up 5% in June to 3.5 million.

At the end of March into beginning of April we took a 4.2 million of annualized overhead out of the business.

And pull of this up with a further million dollars with annualized savings during Q2.

These overhead savings have allowed us to manage against the worst impacted the pandemic.

We continue to the due to deliver.

Positive EBITDA for the quarter, a positive adjusted EBITDA for the quarter of the half a million dollars.

You may recall that the guidance stated that will be between breakeven and the Q1 number of 1.2 million.

Our adjusted EBITDA in Q2 was $7.1 million against 9.4 million in Q1.

From a cash management perspective.

We continue to manage the tightly across the quarter.

But did take the opportunity cleaned up certain areas and liabilities on our balance sheet.

I don't know totally complied with all payments due under various cats and investment group investments enough.

Moving to note for 2.5 million that matured in December 2019.

And which was it correcting an elevated interest rate of 18% and 100000 shares of common stock per month.

I'll now hand, the call over the shot to give is real cooler, our corporate controller and principal accounting officer for further update John ago.

Thank you Brenda and good morning, everyone.

The second quarter, Tony Tony revenues of 43.4 million. Besides a decline of 21% of the pie guarantee of 73.5 million.

The decline of 29.4 million, that's driven by the impact she sells to the coal the 19 pandemic and declining unfavorable foreign exchange appetite seven mode.

Revenue during the quarter was comprised of 42 million of temporary contract revenue.

1.4 million a permanent placement.

It sounds like contracted revenue is now approximately 3.2 million per week down from approximately 5.5 million public into high gear second quarter.

We ended the quarter, Tony Tony with approximately 3590 10 people are taking contractors.

Decline, it's driven by the impact to our business from the corporate 19 pandemic.

However, since April 2020, we have seen I'm trying to now Weeklys and more recently I've seen an increase of approximately 9% 300000 per week at the end of the last week in July as compared to the second quarter here.

Gross profit for the quarter of 7.6 million decreased by 37.5% some 12.1 loan in the prior year.

Gross margin improved to 17.4% first of 16.5% in the prior year quarter, largely driven by shift some low margin customers to high margin calls to move in the UK.

Operating expenses for the quarter were 9 million a decrease of 22.1% from 11.6 million from the prior years.

The decrease in operating expenses driven by the company's action to reduce the net negative effects of the cobot 19 pandemic various cost cutting initiatives, such a decrease in salaries and wages and reduction in nonrecurring costs legal and other costs associated with refinancing and acquisition assets.

Loss from operations for 1.4 million as compared to income from operations at 515000 in the prior year a comparative quarter.

Our expenses for the quarter remained consistent at 2.3 million compared to prior year.

This performance translated into a net loss of 3.8 million compared with 1.5 million net loss in the prior year quarter.

EBITDA declined by approximately 185% to negative point 8 million compared to positive 1 million and adjusted EBITDA declined by 78% to quite 5 million from 2.4 million to prior year quarter.

Turning to the balance sheet and cash flows. The most significant changes from December 19 are the PPP well somebody asked the a 19.39 million and funding of 1 million British pounds from HSBC in UK.

We also paid off as short term loans of 2.5 million in May of 2020 that was G. The Jackson investment group at the end of December 2019.

I'll now hand, the Carlo Alicia Backer, our executive Vice President and Chief operating Officer.

I would show.

Thank you Brenda and Chronicle and thank you, everyone, who has joined us for todays call.

For a laptop paid when 18 or 20 officers has successfully reopened all beginning on June eight I'm very pleased to report, but all of our offices are now open and we have had growing attendance in the offices on a weekly basis.

[noise] I'll remind you that phase one of our reopening plan was completely voluntary.

<unk> said during phase one every member of our executive in the local leadership team had a physical presence in every one of our offices.

We are encouraged attendance and meeting slowly and now.

If I look around today I see that our New York headquarters is probably golf.

We have capacity limitations based on state in country God long and as a company. We continue to insist that attendance allows for six people social does come from.

That's more people were talking to the office I acknowledge the excellent safety protocols that were implemented.

What is catching on and people are more comfortable returning.

Fortunately, 87% of our staff dogs to work and the cities like New York in London, where public transportation continues to called level of anxiety.

Never raised reimbursement for parking or car service. So when all of those employees can say forget to work.

We've also announced that the company will transition to phase two of our reopening on Monday August 17th.

The primary difference and actually the only difference between phase one I'd say.

Yes, I'd say two requires that each employee Tom's runoff of.

To date per week.

We've had very candid and regular communications with our global team.

Our opinion not the predictions at the end of the office are pretty mature ankle facing alive.

Companies like Facebook, and Google core offerings, Sobi remote work I'm not a good comparative staffing agency.

Well going company.

Sales people in the preferred and work best collaboratively.

In the ballpark.

On the floor optimize employee engagement on productivity.

The long life safety precautions and corporation, we've taken in anticipation of returning for office will not change at all but some cases condensate so.

As I thought on our last call. This include daily self certifications of health you find anyone goes in phone office.

Cleaning <unk> sanitizing.

The provisioning of P.T. equipment, including some longer Paul stuff.

Well assignments for social discussing.

Maximum capacity limitations.

Coordinated uplift for building man.

Okay opinion in communications of clients on contractors.

Well, we all hope focused distasteful allowed business to continue to operate from an office environment.

We are well prepared to talk on the dog, if we need to do so.

Under one leadership our team matters. This very successfully other sub ninex things circumstances that said, we find ourselves it has positioned the gap.

Now I've gained a depth of experience knowledge and upgrade the payroll automation and Onboarding contractors part will serve us well.

Brendan noted for 5.2 million a reduction if we took out of our business late March through early April on our last call.

We've continued to monitor that expenditure rigorously.

So I don't know up call, but our employee engagement mineral has never been higher.

The most recent results of our formal employee engagement survey through Thomas International came in this month.

And indicate that our levels of employee engagement hop off the benchmark and much higher than average.

Awesome toys to measure engagement for relationship.

Oh and reward.

Workplace engagement is associated with high levels of performance and organizational wellbeing and we will use the results of this survey to continue to drive performance and change behavior from action, where we need so.

[noise] I'd like to take a moment to share my appreciation of the continued responsiveness and exceptional work ethic of our staff.

I think it's less than ideal conditions.

I'll now hand, the call back to bundle.

Thank you Alicia.

At the moment, we're seeing revenue improvements in Q3 would you like 15% up on its equivalent month of April.

Overall for the quarter, we're anticipating that revenue will be up 20% over Q2.

Gross profit similarly, improving.

We have cost controls our adjusted EBITDA should return to the Q1 level or a little better.

When I look at our temporary contractor numbers.

We average Q1 at 4500.

We dropped to 3200 in April.

I don't know entered Q3 with 3800 in July.

And 4050 in August.

So all this is now 26% higher than our loop point of April.

Our expectation is that our pipeline of activity.

We're bringing has pretty much the Q1 levels are better by the end of September.

The strongest area of growth is being seen in our commercial staffing business dream.

Well, we are seeing some green shoots of recovery in the professional staffing businesses also.

Our pipeline of new activity is stronger than it has ever been.

With a number of large opportunities presented to us that we are evaluating.

These are typically lower margin contracts, but with judicious cost controls, we can make a comparable EBITDA margin on them.

In relation to client engagement, we have not seen any margin pressure.

We did have some clients furlough are temporary workers, but these are now returning which is driving our growth.

Well there are no guarantees in relation to how this pandemic develops our business along the eastern Seaboard and UK are now in towns and cities, where the reproduction rates are generally holding steady.

We just why leisure has outlined our phase to return to the office program.

However, I stated should anything change we now have the capability can pivot on the time, that's moved to full remote working again.

The development of communication platform, such as zoom or Microsoft teams has allowed us to be fully in communication with each other.

And as highlighted the importance of strong I'd see in the modern world after the staffing industry in general both as a tool and the product offerings.

The forgiveness process for the Paycheck protection program started on August 10th.

And we are currently bringing our paper work together to start the process.

Approximately 96% of our loans, we use for the purpose of payroll.

With the remainder use prepayments of rents in our offices that lay empty during the locked down periods.

We are confident that we will justify total or almost totally forgiveness on the 19.395 million of loans received from the small business administration.

In relation to other government stimulus programs, we've continued to participate in the employer payroll tax the barrel program.

This plan allows for the deferral of FICA taxes on an interest free basis.

With repayments to 50% in December Twentytwenty warm.

And 50% in December 2022.

We have been purposely executing on this since the beginning of April.

Payroll tax savings amounting to approximately $110000 per week.

This is expected to add 4.3 million enough cash flow support between April and December 31st Twentytwenty.

We continue to review the role.

The main street lending program can provide without consultant or W. Baird.

On Monday of this week, we hosted the webinars for potential debt providers.

We await the outcome of that call him the level of interest that it may have raised.

We continue to see the staffing market in the same way is our peer firms that have already upon departed.

And we reiterate our previous view the Twentytwenty will continue to be a challenging year.

As I said earlier, we're seeing some recovery and based on discussions with clients about their needs and plans.

Expect the second half to be a continuing growth period with a much stronger recovery in 2021.

To sum it up our solid business pipeline and diverse client base provides a measure of stability to our business.

Our position in relation to M&A remains unchanged from last quarter and that our focus is on refinancing our balance sheet and keeping our employees safe.

Consequently, we have put any M&A activity on hold for several months, while we deal with these important issues.

With that said I appreciate your giving us your time and attention this morning.

Operator, I would now like to had to call over to you for our Q1 day session.

Thank you, ladies and gentlemen, we will now conduct a question and answer session. If you would like to ask your question. Please press star one on your telephone keypad confirmation tone will indicate that your line is in the question Q you May press Star too if you would like to remove your question from the Q4 participants using speaker equipment.

Maybe necessary to pick up the handset before pressing the star teas.

One moment, please what we poll for questions.

And we'll hear from William Greene goes Eskey with Greenridge global.

Hey, Brenda nice quarter and sounds positive for the third quarter as well.

You know in the past you've talked about how difficult some of your markets for with very low unemployment now that we're seeing that swing you know hard and the other direction.

Can you just talk about how you see kind of near term and longer term the potential.

For the business with.

Rising unemployment in more people available.

Sure no problem. So historically I think I've mentioned, the Atlanta market was pretty close to zero unemployment and there was quite challenging for our first pro consultants in place in people.

And first pro had a quite a challenging locked down period, but what is very positive is that you're in the lumps of July and August.

The revenue and gross profit numbers for first pro has increased materially.

Permanent placements are starting to become a little bit easier to complete as clients do gain a better understanding that that may have to place people advise zoom call rather than in person, which was one of the struggles that they had during the course of April and May.

So that is helping us.

The $600 unemployment benefit.

Was a challenge in some of our commercial staffing areas in that.

Certain number of people, who were earning more being unemployed and whatever and being employed.

The fact that has now come down to $400 has created a little bit more of a stimulus and then the availability of candidates across commercial scoffing. So we have continued to see that grow.

We still have somewhere in the order of 802000 open roles within our commercial staffing business that we are working your way through ceiling and we will work their way through feelings about the third quarter.

So it certainly helps.

Having zero unemployment is totally unhelpful, but having a certain amount is healthy employment unemployment helps us I do reiterate I don't remember as I said this in the last call enough.

The amount of people who are unemployed now in both the United States in the United Kingdom.

Is a huge opportunity for the staffing industry in general because neither government. Neither economy can afford to have that many people have employed so I.

I do think Twentytwenty, one will be quite a phenomenal growth year for us.

Okay, Great and then you talked about you know the mainstream lending and kind of refinancing Jackson.

Is there any update you can provide on receivable financing.

I would say that right now, we're very happy with our relationship with Midcap financial in the U.S. and with HSBC in the UK.

Both groups have been incredibly productive for us of arc.

Main focus is in refinancing our term debt.

Is that should come along with the same requirement to.

Work on our accounts receivable financing that we will look at it but the principal focus on their main street lending is the refinances Jackson debt from our balance sheet.

Okay, so likely to assume you'll just extending mid cap.

Okay.

I would say that's likely bill yes.

Okay alright, thank you.

It's an additional reminder, if you would like to ask a question. Please press star one on your telephone keypad and next we'll take a question from Paul Denby with Denby Enterprises Inc.

Hi, Brendan.

I hope everybody still doing well sounds like it.

Congratulations on a.

Surviving this pandemic in the workforce.

And obviously it seems like to me now you really got this business.

Back on track.

I guess I wouldn't go ask if you can expand a little bit if you expect your employment to be back even in September.

Would that put you back on the path, where you were as far as.

Oh, 30 300 million dollar business.

That's the first question.

Okay. So.

I mentioned that we did back the.

Pre pandemic levels of contractors, but in the September and therefore, we should the rise and adjusted EBITDA number.

Similar to Q1, if not a little bit better so that's where we expect.

In terms of the growth rates towards being 300 million again, we've obviously lost.

Somewhere in the order, one and a half quarters in that growth rates aware.

We're a little bit behind the curve.

The pipeline of activity that we have and the two major projects that we are evaluating.

One of which May happen in September October one of which may happen in January but neither happened until they actually happens so we're still evaluating those.

So certainly if they come off than we are back above 300 million again, if they don't we do still have a very robust pipeline in our large accounts team and commercial staffing.

We do have a lot of our professional staffing clients, who are returning to work mode in both.

The U.S. and the UK.

We do have our largest client.

Which has recently.

Going to those as a tier one supplier not just in the UK, where we principally where but also in Poland, Romania, Malaysia, Costa Rica and Mexico.

So we're looking for them.

A healthy growth in our relationship with that decline going forward. So that there's a lot of stuff going on Paul So there's a lot of reasons to be.

Optimistic.

Yeah. It really is it really sounds a great I mean, it's just amazing that this company still so undervalued, what's the potential and what you've done with the balance sheet. What's what this ppps allowed you to do and of course all the.

If I could the from it.

And especially relate in relation to whats your peers have been doing I don't think anyone of with them is favorite anywhere near as well as it is a staffing 360. So again, thanks for the hard work for your staff and a.

Good luck.

Thanks, Paul I do think guys as an industry that we have a phenomenal opportunity for everybody to succeed this market is huge.

So we don't spend a lot of time.

[noise] challenging or competing with other staffing companies.

The the pie is big enough for everybody to actually do incredibly well.

And this marks the end of our question answer session today I'd now like to turn the call back over to Brendan flat for a brief closing comment.

Thank you again Orlando.

Staffing 360 solutions has continued to be at the forefront of meeting the challenges of Kogan 19, and its economic damage.

I continue to be confident that we will come out of this downturn stronger than we went into it.

I extend my thanks to the appreciation to our talented and hard work and stuff and management team.

These actions are directly responsible for seeing is through the first phase of this storm.

Visibility into the marketplace is improving and our entire industry is committed to getting people back to work as quickly as possible.

Look forward to playing our part in that.

We anticipate that we will continue to drive improvements to our operational performance, while continuing to guide to maintain shareholder value as we progress on a path toward our goal to build a profitable 500 million dollar revenue company.

I wish you good health and safety. Thank you all and we look forward speaking with you again.

Operator that is the end of our call.

Thank you ladies and gentlemen. This concludes todays teleconference. You may disconnect. Your lines at this time. Thank you for your participation.

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